In re Metzeler, Bankruptcy No. 85 B 11183.

Citation78 BR 674
Decision Date11 September 1987
Docket NumberBankruptcy No. 85 B 11183.
PartiesIn re Friedrich-Wilhelm METZELER, as Trustee in Bankruptcy for Uni-Petrol Geselleschaft fuer Mineralolprodukte m.b.H. a German limited liability company. Friedrich-Wilhelm METZELER, Trustee, Petitioner, v. BOUCHARD TRANSPORTATION CO., INC., Respondent.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

Hughes Hubbard & Reed, New York City by Thomas D. Goldberg, for petitioner.

Beck, Halberg & Williamson, New York City by Herbert B. Halberg, for respondent.

DECISION and ORDER

HOWARD C. BUSCHMAN, III, Bankruptcy Judge.

Respondent Bouchard Transportation Co., Inc. ("Bouchard") seeks an order pursuant to Rule 7012(b) of the Rules of Bankruptcy Procedures and Rule 12(b)(6) of the Federal Rules of Civil Procedure dismissing the amended petition brought by the Trustee of Uni-Petrol Geselleschaft fur Mineralolprodukte mbH ("Uni-Petrol") pursuant to § 304 of the Bankruptcy Code, 11 U.S.C. § 304, (1986) (the "Petition"), to recover allegedly preferential and fraudulent transfers made by Uni-Petrol to Bouchard immediately before Uni-Petrol commenced bankruptcy proceedings in Germany on July 24, 1984. The Petition was filed after this Court's decision, 66 B.R. 977, permitting a limited amendment of the original § 304 petition.

I.

Assuming that the actual allegations of the Petition are true for purposes of the motion, e.g., Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957), we turn to its recitals. There it is alleged that on July 24, 1984 Mr. Georg Wolfgramm, as managing director with sole power of representation of Uni-Petrol, applied for the institution of bankruptcy proceedings of Uni-Petrol. On the same day, the Amtsgericht Dusseldorf opened the bankruptcy proceedings. It appointed Friedrich—Wilhelm Metzeler as the Trustee in Bankruptcy ("Trustee" or "Metzeler").

As trustee, he alleges that Uni-Petrol made preferential and fraudulent transfers totalling $580,952.64 to Bouchard when it made three payments by wire transfer from a West German bank to Bouchard's account at a New York bank at a time when Uni-Petrol was insolvent.

It is further alleged that these transfers were made with actual intent to hinder, delay and/or defraud other creditors of Uni-Petrol, as evidenced by the timing of the payments, the size of the July 20, 1984 payment of $446,745.86, more than twice the amount of any previous payment by Uni-Petrol to Bouchard, payment of invoices were addressed to a separate American corporation, Uni-Petrol, Inc., the long overdue status of many of the invoices, and payment for some services for which invoices had not yet been received. It is therefore asserted that the three transfers are voidable under 11 U.S.C. §§ 547, 548 and 550 and under sections 28-48 of the Konkursordnung (German Bankruptcy Act) of February 10, 1877, as amended.1

In support of its claim under § 304, it is alleged, for each transfer, that the granting of relief requiring the return of the transferred sums will "assure the economical and expeditious administration of the estate of Uni-Petrol" in accord with the factors enumerated in § 304(c) by (i) preventing "Bouchard from retaining a fraudulent and preferential transfer" (ii) enabling allocation of those transfers pursuant to priorities prescribed by West German law which is said to be substantially in accordance with the order prescribed by the Bankruptcy Code, (iii) promoting comity and (iv) not prejudicing or inconveniencing American claimholders in the United States who have asserted claims in the Uni-Petrol proceeding. Petition ¶'s 12, 19, 25. Jurisdiction is asserted pursuant to 28 U.S.C. §§ 1334, 157 and venue is claimed pursuant to 28 U.S.C. § 1410. Nowhere is it asserted that Uni-Petrol has leviable property in the United States.

II.

In order to implement the long standing policy of this country in extending comity to foreign bankruptcy proceedings, Congress enacted § 304 to allow "foreign bankrupts to prevent piecemeal distribution of assets in this country by filing ancillary proceedings in domestic bankruptcy courts." Victrix Steamship Co. v. Salen Dry Cargo, A.B., 825 F.2d 709, (2d Cir. 1987); accord, Cunard Steamship Co. v. Salen Reefer Services, A.B., 773 F.2d 452, 454-55 (2d Cir.1985). Pursuant to § 304(b), the Court is vested with discretion, subject to the provisions of § 304(c), to

(1) enjoin the commencement or continuation of
(a) any action against—
(i) a debtor with respect to property involved in such foreign proceeding; or
(ii) such property; or
(b) the enforcement of any judgment against the debtor with respect to such property, or any act or the commencement or continuation of any judicial proceeding to create or enforce a lien against the property of such estate;
(2) order turnover of the property of such estate, or the proceeds of such property to such foreign representative; or
(3) order other appropriate relief.

11 U.S.C. § 304(b). In exercising that discretion, the court, under § 304(c), is to "be guided by" the economical and expeditious administration of such estates consistent with:

"(1) just treatment of all holders of claims against or interests in such estate;
(2) protection of claim holders in the United States against prejudice and inconvenience in the proceeding of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of property of such estate;
(4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title;
(5) comity; and
(6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns."

11 U.S.C. § 304(c).

On this motion in light of the facts pleaded, two sets of issues have emerged: (i) whether the Petition pleads a cause of action and (ii), if it does, whether it may be maintained under § 304.

III.

The first of these issues involves, in turn, whether representative of a foreign bankruptcy estate may maintain causes of action pursuant to the preference and fraudulent transfer sections of the Bankruptcy Code or is limited to those granted by foreign law. In In re Comstat Consulting Services, Ltd., 10 B.R. 134 (Bankr.S.D.Fla. 1981) the court assumed that United States law applied. That assumption was upheld in In re Egeria Societa Per Azioni Di Navigazione, 26 B.R. 494 (Bankr.E.D.Va. 1983) where the court applied § 547 of the Bankruptcy Code and relied on the reference to "preferential or fraudulent dispositions of such estate" contained in § 304(c)(3) as its authority to do so.2

These results have been criticized:

"With respect to the exercise of avoidance powers, the foreign representative should be limited to the powers available under the Laws of the State where the foreign proceeding is pending. The section 804 court\'s tasks should be to assist implementation of the foreign court\'s decrees (when not contrary to fundamental domestic policies), not to provide the foreign representative with the benefit of American avoidance powers, which may be better (from a debtor\'s perspective) than those available in the foreign court."

R.A. Gitlin and E.D. Flaschen, "The International Void in the Law of Multinational Bankruptcies", 42 Business Lawyer, 307, 319 (1987). To proceed on the basis of United States law is also inconsistent with the overall purpose of § 304: to afford comity through ancillary administration. It is not the purpose of § 304 to determine the nature of an estate involved in a foreign proceeding. Those parameters are left to foreign law that creates the avoidance powers granted to a trustee. Cf. Matter of Toga Manufacturing, Inc., 28 B.R. 165, 167 (Bankr.E.D.Mich.1983). Section 304(c) serves to constrain the exercise of those powers in view of other considerations of fairness.

Moreover, neither § 547 nor § 548 contains any indication that the avoidance powers contained therein are to be vested in a foreign representative. Both statutes speak of enabling "The trustee" to exercise those powers of § 547(b), § 548(a). These references plainly refer to a trustee appointed under §§ 701, 702, 703, 1104, 1163 and 1302 and to debtors-in-possession under § 1107(a). We thus hold that a foreign representative may assert, under § 304, only those avoiding powers vested in him by the law applicable to the foreign estate. Had Congress desired to vest a foreign representative with those domestic powers, it would have said so directly.3

Here, the German Bankruptcy Act provides a liquidator of a bankrupt estate with limited powers to avoid certain transactions conducted by the debtor before the proceedings are opened. Section 36 of the German Bankruptcy Act states that "authority to exercise the right of avoidance lies with the Trustee." Elsing Aff. at 5. Section 37(1) provides that "everything alienated, given away or surrendered by the avoidable act from the property of the bankruptcy estate shall be restored to the bankrupt's estate." Id. There are two general requirements for an avoidance action by a Trustee as interpreted by the German courts: (1) the transaction must be a "legal act" and (2) the "legal act" must have resulted in disadvantage to the creditors. Elsing Aff. at 5. As noted by Metzeler, these two requirements are met since the money transfers to Bouchard alleged to be "legal acts," and Uni-Petrol's creditors are alleged to have been disadvantaged since the funds transferred would have been at the disposal of the Trustee if the payments had not been made.

None of this is truly disputed by Bouchard. Instead it observes that Section 41(1) of the German Bankruptcy Code contains a one year statute of limitations, providing that "avoidance is admitted only within one year after the bankruptcy proceedings were initiated." Elsing Aff. at 5. To satisfy the statute, an action must be commenced seeking restitution by avoidance of the payments within one year from the commencement...

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